Variable vs. Fixed Loan

[borden]

I am getting ready to refinance my loans with SoFi, which offers me the best rate of the sites that I have checked (also checked Earnest, DRB).  I was planning on using the 5% variable with the plan to pay them off within 2 years.  I'll be starting my attending job July 31st.  I just checked the rates on the website, and the offered 5 year rates are 3.865% fixed or 3.415% variable.  I was expecting a larger margin between the two.  Given that the difference is only 0.45% and rates are expected to rise, should I go with the fixed rate loan?  Thanks,

Borden

[Zaphod]

borden wrote:

I am getting ready to refinance my loans with SoFi, which offers me the best rate of the sites that I have checked (also checked Earnest, DRB).  I was planning on using the 5% variable with the plan to pay them off within 2 years.  I’ll be starting my attending job July 31st.  I just checked the rates on the website, and the offered 5 year rates are 3.865% fixed or 3.415% variable.  I was expecting a larger margin between the two.  Given that the difference is only 0.45% and rates are expected to rise, should I go with the fixed rate loan?  Thanks,

Borden

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If thats the margin the fixed loan is an easy pick. If rates drift lower you could always just refinance.

[jhwkr542]

Agree, with those numbers I'd do fixed. The difference won't make a large difference in cost and will be insurance for 1. a big rate hike in that short time frame (unlikely but certainly trending up) and 2. a big rate hike if something happens and you need the 5 years to repay.

[billy]

Take the fixed rate now. Then after you've had attending paychecks for a few months you can refinance again, and shop around (earnest, sofi, etc).  You'll likely get better rates with a few months paychecks in your checking account.

[DMFA]

Mathematically you would probably do better with variable, since interest rate risk is more sensitive with longer terms...however if the margin is only 0.45%, you wouldn't be paying that much more anyway, and you could reasonably take the certainty.

Paying it off over two years puts you between pillow a and a soft place.

[Craigy]

I previously refi'd to variable, then recently refi'd to fixed, and now that the job situation is lining up, planning to refi back to variable once the attending checks hit.  It should save us a couple grand over the payoff period, assuming rates don't go up.  If rates go up substantially, it'll be a wash since the payoff period is so short.

Just make sure the job is lined up, and then make sure you pay aggressively as planned.  You don't want to be making minimum payments for months and then suddenly face some income hiccup while the interest rate starts to shoot up.

Every big payment you make further diminishes your interest rate risk.  Just keep making payments until it's gone.